Belgian, Austrian Bonds Fall as Demand for Euro-Area Debt Wanes

April 9 (Bloomberg) -- Belgian and Austrian bonds led
declines among euro-area government debt as investors bet gains
that pushed yields of so-called semi-core markets to record lows
were too rapid given the outlook for rising supply.

Dutch 10-year yields climbed the most in three weeks as the
nation sold 2.04 billion euros ($2.67 billion) of 20-year bonds
at an auction. German two-year notes dropped for a third day
before the country sells an additional 5 billion euros of the
securities tomorrow. Italy will auction 11 billion euros of
bills tomorrow as well as bonds the following day. Finland sold
10-year bonds through banks, while the European Financial
Stability Facility sold 8 billion euros of five-year notes.

“We have quite a decent chunk of supply coming to the
market so there’s a lot for the market to digest,” said Michael
Leister, an interest-rate strategist at Commerzbank AG in
London. “We’re seeing some profit-taking after the impressive
rally we’ve seen in the semi-core. We remain constructive on
semi-core spreads as the hunt for yield goes global, so we think
this selloff will be short-lived.”

Belgium’s 10-year yields increased six basis points, or
0.06 percentage point, to 2.02 percent at 4:43 p.m. London time
after dropping to 1.924 percent yesterday, the lowest since
Bloomberg began compiling the data in 1993. The 2.25 percent
bond due in June 2023 fell 0.6, or 6 euros per 1,000-euro face
amount, to 102.07.

The extra yield investors demand to hold the securities
instead of German bunds widened for the first time in seven
days, expanding four basis points to 76 basis points.

Yields Rise

Austrian 10-year yields rose eight basis points to 1.58
percent after dropping to a record 1.46 percent yesterday.
Similar-maturity Dutch 10-year yields climbed seven basis points
to 1.70 percent after rising as much as eight basis points, the
most since March 20.

“We might be taking a pause for breath,” said Nick
Stamenkovic, a strategist at RIA Capital Markets Ltd. in
Edinburgh. “Italy is probably going to be the most important”
among this week’s debt auctions, he said.

Volatility on Austrian bonds was the highest in euro-area
markets followed by those of Belgium and the Netherlands,
according to measures of 10-year debt, the yield spread between
two- and 10-year securities and credit-default swaps.

Demand for the bonds of Europe’s so-called semi-core
nations surged after the Bank of Japan said last week it would
increase its monthly asset purchases to 7.5 trillion yen ($75.7
billion), exceeding the 5.2-trillion yen forecast by economists
surveyed by Bloomberg. Europe’s government securities climbed on
bets Japanese investors would seek higher returns abroad as
local yields fell and the yen weakened.

Finnish Auction

Finland’s 10-year bonds fell for a second day after it sold
4 billion euros of a new benchmark security via banks. The
Finnish 10-year yield climbed four basis points to 1.47 percent.

The sale had “exceptionally strong demand,” the EFSF said
in an emailed statement. “Close to 200 investors” bid for 14
billion euros of the debt, it said.

Austria has mandated banks to sell a 10-year bond, a person
familiar with the matter told Bloomberg News today. The person
asked not to be named because they aren’t authorized to talk
about the sale.

Germany’s 10-year yield increased three basis points to
1.26 percent after falling to 1.20 percent on April 5, the
lowest level since July. The two-year yield rose one basis point
to 0.028 percent.

German Exports

German exports, adjusted for working days and seasonal
changes, dropped 1.5 percent from January, when they gained 1.3
percent, the Federal Statistics Office said. French
manufacturing confidence unexpectedly worsened last month,
according to the national statistics office.

“The outlook for Europe is really quite meager and that’s
not only because of the periphery but weakness in the core
member states, even in Germany,” said Elwin de Groot, a market
economist at Rabobank Nederland in Utrecht, the Netherlands.
“This is keeping a lid on core yields.”

Belgian bonds returned 1.9 percent this month through
yesterday, according to indexes compiled by Bloomberg and the
European Federation of Financial Analysts Societies. Italian
securities gained 2 percent and Spain’s rose 1.9 percent.